Lookup NU author(s): Dr Jong Shin
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License (CC BY-NC-ND).
This paper studies the choice of monetary policy regime in a small open economy with noise traders in forex markets. We focus on two simple rules: fixed exchange rates and inflation targeting. We contrast the above two rules against optimal policy with commitment under productivity shocks. In general, the presence of noise traders increases the desirability of a fixed exchange rate regime. We also evaluate the welfare impact of Tobin taxes in this milieu. These taxes help unambiguously in the absence of productivity shocks; their welfare impact under productivity shocks depends on the monetary regime in place and trade elasticity between domestic and foreign goods.
Author(s): Shin J, Subramanian C
Publication type: Article
Publication status: Published
Journal: Journal of Macroeconomics
Print publication date: 01/09/2016
Online publication date: 13/05/2016
Acceptance date: 11/05/2016
Date deposited: 08/06/2016
ISSN (print): 0164-0704
ISSN (electronic): 1873-152X
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